MONARCH SCHOOL PROJECT

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1 CONSOLIDATED FINANCIAL STATEMENTS

2 Pages I Index 1 II Independent auditor s report 2-3 III Consolidated statements of financial position 4 IV Consolidated statements of activities and changes in net assets 5-6 V Consolidated statements of functional expenses 7-8 VI Consolidated statements of cash flows 9 VII Notes to the consolidated financial statements 10-22

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5 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Page 4 ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,074,099 $ 1,228,775 Restricted cash (note 3) 477, ,547 Certificates of deposit 4,350,000 3,350,000 Accounts receivable 3, Pledges receivable (note 4) 96, ,137 Prepaid expenses and other current assets 66,040 61,979 Accrued interest receivable NMTC (note 6) 89,434 89,434 Accrued interest receivable 14,628 10,150 TOTAL CURRENT ASSETS 6,171,415 5,191,522 PROPERTY AND EQUIPMENT (NOTE 5) 20,703,614 21,031,990 OTHER ASSETS Restricted cash (note 3) 406, ,131 Pledges receivable long-term (note 4) - 87,340 New markets tax credit financing (note 6) 11,630,375 11,630,375 Beneficial interests in foundations (note 7) 187, ,741 TOTAL OTHER ASSETS 12,223,914 12,009,587 TOTAL ASSETS 39,098,943 38,233,099 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable and accrued expenses 182, ,079 Accrued interest payable NMTC (note 6) 116,458 91,851 TOTAL CURRENT LIABILITIES 298, ,930 LONG-TERM LIABILITIES New markets tax credit financing (note 6) 15,190,000 15,190,000 Lease deposit 7,531 7,531 TOTAL LONG-TERM LIABILITIES 15,197,531 15,197,531 TOTAL LIABILITIES 15,496,366 15,462,461 NET ASSETS Unrestricted 20,149,981 21,671,432 Unrestricted board designated 2,675, ,289 Temporarily restricted 777, ,917 TOTAL NET ASSETS 23,602,577 22,770,638 TOTAL LIABILITIES AND NET ASSETS $ 39,098,943 $ 38,233,099 See accompanying notes

6 CONSOLIDATED STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS FOR THE YEAR ENDED JUNE 30, 2018 Page 5 TEMPORARILY UNRESTRICTED RESTRICTED TOTAL SUPPORT AND REVENUE Contributions and fundraising $ 1,466,611 $ 1,357,505 $ 2,824,116 Rental income 856, ,513 Special events 799, ,635 Interest income NMTC (note 6) 358, ,718 In-kind donations (note 10) 205, ,073 Investment income 50,724-50,724 Unrealized gain on investments in foundations 10,529-10,529 TOTAL SUPPORT AND REVENUE 3,747,803 1,357,505 5,105,308 ASSETS RELEASED FROM RESTRICTION 811,361 (811,361) - EXPENSES Program 3,715,803-3,715,803 General and administrative 145, ,988 Fundraising 411, ,578 TOTAL EXPENSES 4,273,369-4,273,369 CHANGE IN NET ASSETS 285, , ,939 NET ASSETS, BEGINNING OF YEAR 22,539, ,917 22,770,638 NET ASSETS, END OF YEAR $ 22,825,516 $ 777,061 $ 23,602,577 See accompanying notes

7 CONSOLIDATED STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS FOR THE YEAR ENDED JUNE 30, 2017 Page 6 TEMPORARILY UNRESTRICTED RESTRICTED TOTAL SUPPORT AND REVENUE Contributions and fundraising $ 1,680,969 $ 804,238 $ 2,485,207 Rental income 805, ,786 Special events 454, ,527 Interest income NMTC (note 6) 358, ,718 In-kind donations (note 10) 176, ,080 Unrealized gain on investments in foundations 18,792-18,792 Investment income 18,161-18,161 Other income TOTAL SUPPORT AND REVENUE 3,513, ,238 4,317,402 ASSETS RELEASED FROM RESTRICTION 2,021,257 (2,021,257) - EXPENSES Program 3,419,185-3,419,185 General and administrative 181, ,233 Fundraising 386, ,418 TOTAL EXPENSES 3,986,836-3,986,836 CHANGE IN NET ASSETS 1,547,585 (1,217,019) 330,566 NET ASSETS, BEGINNING OF YEAR 20,992,136 1,447,936 22,440,072 NET ASSETS, END OF YEAR $ 22,539,721 $ 230,917 $ 22,770,638 See accompanying notes

8 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2018 Page 7 GENERAL AND PROGRAM ADMINISTRATIVE FUNDRAISING TOTAL EXPENSES Payroll costs $ 1,508,019 $ 52,674 $ 313,552 $ 1,874,245 Depreciation 500,981 7,801 4, ,247 Interest expense NMTC 455,926 7,100 4, ,091 Facility maintenance 287,144 4,470 2, ,174 Professional fees 181,301 45,863 7, ,381 Student assistance 155, ,485 Outside services 126, , ,822 Instructional supplies 100, ,975 Office and administrative 72,177 16, ,284 Insurance 80,092 1, ,054 Nutrition 77, ,168 Health care 68, ,168 Scholarships 54, ,479 Special events ,489 43,489 Professional development 21,060 2,591 3,622 27,273 Student activities 26, ,549 Printing, copying and postage - 5,538 10,682 16,220 Dues and subscriptions - 1,646 1,054 2,700 Meals and entertainment - - 2,565 2,565 TOTAL EXPENSES $ 3,715,803 $ 145,988 $ 411,578 $ 4,273,369 See accompanying notes

9 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2017 Page 8 GENERAL AND PROGRAM ADMINISTRATIVE FUNDRAISING TOTAL EXPENSES Payroll costs $ 1,513,578 $ 70,358 $ 307,261 $ 1,891,197 Depreciation 478,824 7,458 4, ,550 Interest expense NMTC 456,076 7,102 4, ,243 Facility maintenance 248,142 3,864 2, ,217 Student assistance 126, ,920 Professional fees 44,536 66,901 7, ,539 Outside services 114, ,043 Instructional supplies 82, ,460 Insurance 77,188 3, ,375 Office and administrative 55,733 10, ,990 Scholarships 61, ,695 Nutrition 60, ,792 Health care 57, ,817 Special events ,303 39,303 Student activities 29, ,275 Professional Development 11,279 3,772 2,190 17,241 Printing, copying and postage - 5,925 8,877 14,802 Dues and subscriptions - 1,483 2,625 4,108 Meals and entertainment - - 7,269 7,269 TOTAL EXPENSES $ 3,419,185 $ 181,233 $ 386,418 $ 3,986,836 See accompanying notes

10 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED Page CASH FLOWS PROVIDED BY OPERATING ACTIVITIES Change in net assets $ 831,939 $ 330,566 ADJUSTMENTS TO RECONCILE CHANGE IN NET ASSETS TO NET CASH PROVIDED/(USED) BY OPERATING ACTIVITIES: Depreciation expense 513, ,550 Unrealized gain from beneficial interests in foundations (10,529) (18,792) Change in operating assets and liabilities: Pledges receivable 135,271 (68,297) Prepaid expenses and other current assets (4,061) 2,277 Accounts receivable (3,094) 14,225 Accrued interest receivable (4,478) (10,150) Accounts payable and accrued expenses 9,298 50,003 Accrued interest payable 24,607 (24,607) NET CASH PROVIDED BY OPERATING ACTIVITIES 1,492, ,775 CASH FLOWS PROVIDED/(USED) BY INVESTING ACTIVITIES Net change in restricted cash (462,004) 1,329,741 Purchase of certificate of deposits, net of maturities (1,000,000) (3,350,000) Distributions from investments in foundations - 1,255 Purchase of property and equipment (64,155) (11,460) Purchase of building and building improvements (120,717) (1,270,126) NET CASH USED BY INVESTING ACTIVITIES (1,646,876) (3,300,590) NET DECREASE IN CASH (154,676) (2,534,815) CASH, BEGINNING OF YEAR 1,228,775 3,763,590 CASH, END OF YEAR $ 1,074,099 $ 1,228,775 Supplemental disclosures Interest paid $ 442,484 $ 490,550 Interest received $ 358,718 $ 358,718 Taxes paid $ - $ - See accompanying notes

11 Page 10 NOTE 1 THE ORGANIZATION Monarch School Project (the Organization) is a nonprofit corporation established for the purpose of supporting student learning at Monarch School. The Organization partners with the San Diego County Office of Education and provides programs in order to enhance the education of students experiencing homelessness. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of accounting The accompanying consolidated financial statements are prepared using the accrual method in conformity with US generally accepted accounting principles (GAAP). Basis of consolidation In 2011, the Organization formed Monarch School 1625, LLC, a single-member LLC, to build a new campus for the school. The consolidated financial statements include the accounts of the Organization and Monarch School 1625, LLC, a wholly-owned subsidiary. All significant interorganization balances and transactions have been eliminated. Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures. Accordingly, actual results could differ from these estimates. Basis of presentation The Organization reports information regarding its financial position and activities within three classes of net assets: unrestricted net assets, temporarily restricted net assets and permanently restricted net assets. Donor-imposed restrictions All contributions are considered to be unrestricted unless specifically restricted by the donor. Amounts received designated for future periods or restricted by the donor for specific purposes are reported as temporarily or permanently restricted, increasing those net asset classes. If a restriction is fulfilled in the same period in which the contribution is received, the support is reported as temporarily restricted and then released from restriction in the same period. Cash and cash equivalents The Organization considers financial instruments with a fixed maturity date of less than three months from the statement of financial position date to be cash equivalents. The Organization maintained its cash accounts at four commercial banks as of June 30, 2018 and The Organization restricts investments of cash to financial institutions of high credit standing. Cash deposits are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) up to $250,000 per financial institution at June 30, 2018 and At June 30, 2018 and 2017, the Organization had balances in its banks of approximately $1,002,000 and $1,076,000, respectively, that were in excess of the insured limits. Restricted cash Restricted cash consists of funds received with a donor-imposed restriction that limits their use to long-term purposes. The Organization also has the New Markets Tax Credits (NMTC) financing funds, which are controlled by the bank and are restricted for use towards interest payments (see note 3).

12 Page 11 Certificates of deposit Certificates of deposit are investments that are not subject to Financial Accounting Standards Board (FASB) 820, Fair Value Measurement and have been recorded at cost. These investments have an original maturity date that exceeds three months and have therefore not been included as cash. Promises to give Unconditional promises to give expected to be collected within one year are recorded at net realizable value. Unconditional promises to give expected to be collected in future years are recorded at the present value of estimated future cash flows. The discounts are computed using Treasury bill rates applicable to the years in which the promises are received. It is the Organization s policy to charge off uncollectible pledges receivable when management determines the receivable will not be collected. Beneficial interests in foundations Beneficial interests in foundations are valued at their fair values on the statements of financial position. Unrealized gains and losses are included in the change in net assets. Property and equipment Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the assets' estimated useful lives of three to thirty-nine years. Maintenance and repairs are charged to expense as incurred. Major renewals and betterments are capitalized. It is the Organization's policy to capitalize all property and equipment costs in excess of $1,000. When items of property and equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is recognized in the current period financial statements. Impairment of long-lived assets The Organization reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such property may not be recoverable. Recoverability is measured by a comparison of the carrying amounts of an asset to the future net undiscounted cash flows expected to be generated by the asset. If the asset is considered to be impaired, the impairment to be recognized is measured at the amount by which the carrying amount of the asset exceeds the fair value of such property. There were no impairment losses recognized for the years ended June 30, 2018 and Revenue recognition Contributions received are recorded as unrestricted, temporarily restricted or permanently restricted support depending on the existence and/or nature of any donor restrictions. All donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions.

13 Page 12 In-kind donations Donated gifts and services are recognized as contributions if the services (a) create or enhance nonfinancial assets or (b) require specialized skills, are performed by people with those skills and would otherwise be purchased by the Organization. The Organization recognizes the value of donated gifts and services by recording the donations at their fair value (see note 10). Contributed property and equipment Property and equipment that have been contributed are recorded at fair value at the date of the donation. If donors stipulate the purpose of an asset's use, the contributions are recorded as restricted support. In the absence of such stipulations, contributions of property and equipment are recorded as unrestricted support. In the absence of a readily determinable fair value, management may use estimates to determine the fair value of contributed property. Fair value measurement The Organization follows accounting standards consistent with the FASB Codification which defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements for all financial assets and liabilities. Income taxes As a nonprofit organization, the Organization has obtained exempt status. Under Internal Revenue Section 501(c)(3) and Section 23701(d) of the California Franchise Tax Code, the Organization is not subject to income taxes for operations related to its exempt purpose. As of June 30, 2018 and 2017, the Organization believes it does not have any taxable unrelated business income, and accordingly, has not accrued interest or penalties related to uncertain tax positions. The Organization files tax returns in the U.S. Federal jurisdiction and the State of California. Recent Accounting Pronouncement - In August 2016, FASB issued Accounting Standards Update (ASU) , Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. The new guidance improves and simplifies the current net asset classification requirements and information presented in financial statements and notes that are useful in assessing a not-for-profit s liquidity, financial performance and cash flows. ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. ASU is to be applied retroactively with transition provisions. The Organization is assessing the impact this standard will have on its financial statements.

14 Page 13 NOTE 3 RESTRICTED CASH Restricted cash consists of amounts restricted by the Organization's donors and the NMTC funding to be used for the following specified purposes in the following year: School programs and activities $ 370,793 $ 232,731 NMTC interest reserve* 106,621 73,816 Total short-term restricted cash $ 477,414 $ 306,547 Restricted cash consists of amounts restricted by the Organization's donors and the NMTC funding to be used for the following specified long-term purposes: School programs and activities $ 406,268 $ 8,500 NMTC interest reserve* - 106,631 Total long-term restricted cash $ 406,268 $ 115,131 *In addition to funds that have been restricted by donors, amounts are held and controlled by Opus Bank and can only be used toward interest costs related to the NMTC financing for the school's campus. NOTE 4 PLEDGES RECEIVABLE Pledges receivable consist of the following: Gross pledges receivable $ 101,306 $ 251,737 Less: Allowances for uncollectible pledges receivable (5,100) (17,600) Less: Discount to net present value - (2,660) Net pledges receivable $ 96,206 $ 231,477 Amounts due in: Less than one year $ 101,306 $ 151,737 One to five years - 100,000 Total amounts due $ 101,306 $ 251,737 Pledges receivable with due dates extending beyond one year are discounted using Treasury bill rates for similar term investments as of the date the pledge was received.

15 Page 14 NOTE 5 PROPERTY AND EQUIPMENT Major categories of property and equipment are summarized as follows: Balance at 6/30/2017 Additions Disposals Balance at 6/30/2018 Building and improvements $ 16,756,803 $ 126,126 $ - $ 16,882,929 Land 5,600, ,600,000 Furniture and fixtures 582,055 56, ,961 Vehicles 20, ,852 Computers and equipment 10,829 7,249-18,078 $ 22,970,539 $ 190,281 $ - $ 23,160,820 Accumulated depreciation (2,457,206) $ 20,703,614 Balance at 6/30/2016 Additions Disposals Balance at 6/30/2017 Building and improvements $ 15,492,089 $ 1,264,714 $ - $ 16,756,803 Land 5,600, ,600,000 Furniture and fixtures 570,595 11, ,055 Vehicles 20, ,852 Computers and equipment 10, ,829 $ 21,694,365 $ 1,276,174 $ - $ 22,970,539 Accumulated depreciation (1,943,959) Construction in progress 5,409 $ 21,031,990 Depreciation expense was $513,247 and $490,550 for the years ended June 30, 2018 and 2017, respectively. The renovation of the Organization s main lobby and parent room was completed in December 2017 for a total cost of $181,233. In May 2012, the Organization, upon receiving funds from the New Markets Tax Credit Program (see note 6), entered into an agreement with the Redevelopment Agency of San Diego to obtain the property on Newton Avenue. The Organization is contractually obligated to use the Newton Avenue property for the purpose of continued operation of a school for disadvantaged children and will default on the agreement if not used for this purpose.

16 Page 15 NOTE 6 NEW MARKETS TAX CREDIT FINANCING In May 2012, the Organization entered into a debt transaction to access additional funds through the New Markets Tax Credit Program. These funds were used towards the construction of the Organization s Nat and Flora Bosa Campus on Newton Avenue. The NMTC Program permits taxpayers to claim federal tax credits for making Qualified Equity Investments (QEI) in a designated Community Development Entity (CDE). The CDE must use substantially all of the proceeds to make Qualified Low-Income Community Investments (QLICIs). The tax credits are claimed over a seven-year period and equate to 39% of the QLICIs. The Organization has partnered with an investor, Opus Bank, to utilize the NMTC Program. Opus Bank established a special purpose entity called Monarch School Investment Fund, LLC (MSIF) to raise the capital for the transaction. MSIF was funded with $4,382,625 of equity from Opus Bank, a $3,800,000 loan (Senior Loan A) from the Clearinghouse Community Development Financial Institution (CCDFI) and a $7,830,375 loan from the Organization. It was the Organization s intention to purchase CCDFI s interest in Senior Loan A as funds are raised in the Organization s capital campaign, and on May 2, 2012, the Organization purchased a 50% interest in the note for $1,900,000. On July 18, 2012, the Organization purchased an additional 23.7% interest in the note for $900,000. On January 31, 2014, the Organization purchased the remaining interest in the note for $1,000,000. The promissory note states MSIF will make quarterly interest only payments at 7.50% to the holder of the note until the maturity date, May A final payment of the remaining principal and interest will be due May The note is secured by the MSIF membership interests in Monarch/NCF Sub-CDE, LLC. The Organization did not have the right to receive any payments, principal or interest, from MSIF until the Organization fully participated in the promissory note, completed on January 31, 2014, at which point the Organization receives 100% of the payments from MSIF. As of June 30, 2018 and 2017, the Organization had an accrued interest receivable amount of $69,641 due from MSIF. The $7,830,375 loan (Senior Loan B) from the Organization to MSIF requires quarterly interest-only payments at 1.00% until April In July 2019, MSIF will make a $31,924 principal and interest payment to the Organization. Thereafter, the payments will consist of quarterly installments of $95,256 of principal plus accrued interest at 1.00% until April A final payment of the remaining principal and interest will be due May The note is secured by the MSIF membership interests in Monarch/NCF Sub-CDE, LLC. At June 30, 2018 and 2017, the balance of the note was $7,830,375 and accrued interest under the note was $19,793. This capital raised by MSIF was used to make a $15,500,000 QEI in a CDE called Monarch/NCF Sub-CDE, LLC, a wholly owned subsidiary of MSIF. The CDE then loaned these funds to Monarch School 1625, LLC in the form of three notes.

17 Page 16 The first note payable (QLICI Loan A) has a balance of $3,800,000 as of June 30, 2018 and 2017 and bears interest at 3.033%. The note requires quarterly interest only payments, matures May 7, 2019, and is guaranteed by substantially all of the assets of the Organization. The Organization expects to acquire the QLICI Loan A ($3,800,000) in satisfaction of the MSIF s Senior Loan A ($3,800,000) obligation to the Organization at the end of the NMTC compliance period, and those notes will cancel by operation of law, as the lender and borrower merge at the Organization level. As of June 30, 2018 and 2017, the Organization had an accrued interest payable amount of $29,134 and $22,978, respectively, due to the CDE relating to QLICI Loan A. The second note payable (QLICI Loan B) has a balance of $7,830,375 as of June 30, 2018 and 2017 and bears interest at 3.033%. The note requires quarterly interest only payments through May 7, 2019, at which time payments increase to fully amortize the note over 23 years. The note matures May 7, 2042 and is guaranteed by substantially all of the assets of the Organization. Similar to QLICI Loan A, the Organization expects to acquire the QLICI Loan B ($7,830,375) in satisfaction of MSIF's Senior Loan B ($7,830,375) obligation to the Organization at the end of the NMTC compliance period, and those notes will also cancel by operation of law, as the lender and borrower merge at the Organization level. As of June 30, 2018 and 2017, the Organization had an accrued interest payable amount of $60,034 and $47,349, respectively, due to the CDE relating to QLICI Loan B. The third note payable (QLICI Loan C) has a balance of $3,559,625 as of June 30, 2018 and 2017 and bears interest at 3.033%. The note requires quarterly interest only payments through May 7, 2019, at which time payments increase to fully amortize the note over 23 years. The note matures May 7, 2042 and is guaranteed by substantially all of the assets of the Organization. As of June 30, 2018 and 2017, the Organization had an accrued interest payable amount of $27,290 and $21,524, respectively, due to the CDE relating to QLICI Loan C. Notes receivable and notes payable related to the NMTC financing reflected on the consolidated statements of financial position as of June 30, 2018 and 2017 are as follows: Notes receivable: Senior Loan B $ 7,830,375 $ 7,830,375 Senior Loan A 3,800,000 3,800,000 Total notes receivable $ 11,630,375 $ 11,630,375 Notes payable: QLICI Loan B $ 7,830,375 $ 7,830,375 QLICI Loan A 3,800,000 3,800,000 QLICI Loan C 3,559,625 3,559,625 Total notes payable $ 15,190,000 $ 15,190,000

18 Page 17 Interest income and expense related to NMTC financing for the years ended June 30, 2018 and 2017 is as follows: Interest income $ 358,718 $ 358,718 Interest expense $ (467,091) $ (467,243) The seven year compliance period for the NMTCs will end May 7, 2019, at which time Opus Bank may exit the transaction through the exercise of a call/put agreement that it has entered into with the Organization. Under the agreement, Opus Bank may put its interest in MSIF to the Organization for a purchase price of $1,000. In the event that Opus Bank has not exercised this put option, the Organization has 180 days to exercise its call option to purchase Opus Bank s entire interest in MSIF for a purchase price equal to the appraised value of Opus Bank's interest. To exercise the call option, the Organization must be current on all payments under the three notes payable and must not owe any additional amounts to MSIF or Opus Bank. The Organization will realize its savings from the NMTC transactions through the exercise of this put or call option, at which time it will control MSIF and can effectively forgive the QLICI Loan C. No amounts have been recorded in the accompanying consolidated financial statements related to these put and call options. As part of its agreement with Opus Bank, the Organization has guaranteed Opus Bank s expected 8.74% return on investment in the event of certain defaults by the Organization. This return includes both interest income earned by Opus under the QLICI Loans and its return in the form of $6,045,000 of NMTCs. The Organization s guarantee would become effective in the event that the Organization ceases to be a Qualified Active Low-Income Community Business as defined by IRC 45D, the failure of the CDE to maintain substantially all of the QEI because of a foreclosure or otherwise, the failure of any portion of the QLICI Loans to constitute a QLICI due directly or indirectly due to the Organization s violation of the CDE loan documents, any violations of the abuse provisions of Section 1.45D-1(g)(1) of the Treasury Regulations, or in the event of default under the QLICI Loans. The Organization believes that the likelihood of these events occurring is remote, and accordingly, no liability has been recorded in the accompanying consolidated financial statements for this guarantee. NOTE 7 BENEFICIAL INTERESTS IN FOUNDATIONS In 2004, the Organization invested $75,000 with the San Diego Foundation Endowment Fund. The investment was made after a donor requested their $50,000 donation be invested in an endowment fund. An additional $5,000 donor contribution was made in February 2005, and two donations totaling $950 were made in March The investment will be held in perpetuity with the San Diego Foundation and all distributions from the investment may be used at the discretion of the Organization. In 2012, the Organization invested $25,000 in an endowment fund with the Jewish Community Foundation of San Diego. The investment will be held in perpetuity with the Jewish Community Foundation of San Diego and all distributions from the investment may be used at the discretion of the Organization.

19 Page 18 NOTE 8 FAIR VALUE MEASUREMENT The Organization follows the methods of fair value measurement to value its financial assets. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels has been established, which are described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in inactive markets; or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data. Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. Financial assets and liabilities carried at fair value at June 30, 2018 and 2017 are classified in the following schedule in one of three categories described above. The table below presents the balances of assets measured at fair value as of June 30, 2018 on a recurring basis: Assets Level 1 Level 2 Level 3 Total Beneficial interest in San Diego Foundation endowment fund $ - $ - $ 161,263 $ 161,263 Beneficial interest in Jewish Community Foundation of San Diego endowment fund ,008 26,008 $ - $ - $ 187,271 $ 187,271

20 Page 19 The table below presents the balances of assets measured at fair value as of June 30, 2017 on a recurring basis: Assets Level 1 Level 2 Level 3 Total Beneficial interest in San Diego Foundation endowment fund $ - $ - $ 151,492 $ 151,492 Beneficial interest in Jewish Community Foundation of San Diego endowment fund ,249 25,249 $ - $ - $ 176,741 $ 176,741 The investments in the San Diego Foundation Endowment Fund and Jewish Community Foundation of San Diego Endowment Fund are measured using values provided by these foundations. The values are based on the fair market value of the underlying cash, securities and other investments. Although the Organization classifies its investments in each foundation as Level 3, the investments held in each foundation are comprised of Level 1, 2 and 3 investments as reported by each foundation. The following summarizes fair value measurements using significant Level 3 inputs, and changes therein, for the year ended June 30, 2018: Balance at July 1, 2017 $ 176,741 Change in value 10,529 Distribution - Balance at June 30, 2018 $ 187,271 The following summarizes fair value measurements using significant Level 3 inputs, and changes therein, for the year ended June 30, 2017: Balance at July 1, 2016 $ 159,204 Change in value 18,792 Distribution (1,255) Balance at June 30, 2017 $ 176,741

21 Page 20 The Organization may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. The adjustments to fair value usually result from the receipt of in-kind donations or unconditional promises to give. For assets measured at fair value on a nonrecurring basis in 2018 and 2017 that were still held in the consolidated statements of financial position at each respective year end, the following table provides the fair value hierarchy and the carrying value of the related individual assets or portfolios at year end Assets Level 1 Level 2 Level 3 Total Unconditional promises to give $ - $ - $ 96,206 $ 96, Assets Level 1 Level 2 Level 3 Total Unconditional promises to give $ - $ - $ 231,477 $ 231,477 The unconditional promises to give are valued using a discounted cash flow model and are classified as Level 3. The following summarizes fair value measurements using significant Level 3 inputs, and changes therein, for the year ended June 30, 2018: Balance at July 1, 2017 $ 231,477 New pledges received - Collections (150,431) Change in valuation 15,160 Balance at June 30, 2018 $ 96,206 The following summarizes fair value measurements using significant Level 3 inputs, and changes therein, for the year ended June 30, 2017: Balance at July 1, 2016 $ 163,180 New pledges received 400,000 Collections (318,263) Change in valuation (13,440) Balance at June 30, 2017 $ 231,477

22 Page 21 NOTE 9 NET ASSETS Net assets consist of the following: Unrestricted: Undesignated $ 20,149,981 $ 21,671,432 Board-designated: Strategic reserve 1,567,246 - Maintenance reserve 1,108, ,289 Total board-designated 2,675, ,289 Total unrestricted net assets 22,825,516 22,539,721 Temporarily restricted: School programs 777, ,917 Total net assets $ 23,602,577 $ 22,770,638 In August 2013, the Board of Directors of the Organization established a maintenance reserve fund designated for future repairs on the school campus. Such funds are included in unrestricted-board designated net assets in the accompanying consolidated statements of financial position. For the years ended June 30, 2018 and 2017, the board designated net assets of $240,000 and $260,000, respectively, and released $0 and $24,050, respectively. In May 2018, the Board of Directors of the Organization established a strategic reserve fund designated for one-time, nonrecurring expenses that will build long-term capacity, such as research and development. Such funds are included in unrestricted-board designated net assets in the accompanying consolidated statements of financial position. For the years ended June 30, 2018 and 2017, the board designated net assets of $1,567,246 and $0, respectively. No amounts were released for the years ended June 30, 2018 and 2017.

23 Page 22 NOTE 10 IN-KIND DONATIONS The Organization received the following donated services and gifts in-kind for the years ended June 30 as follows: Services: Health services $ 68,168 $ 57,817 Professional services 32,422 30,432 Services for students 8,932 12,188 Total services 109, ,437 Student Support: Food and clothing 59,887 44,823 Gift cards and other support 35,664 30,820 Total student support 95,551 75,643 Total in-kind donations $ 205,073 $ 176,080 NOTE 11 FUNDRAISING EXPENSE Total fundraising expense for the years ended June 30, 2018 and 2017 was $411,578 and $386,418, respectively. Fundraising expenses related to the annual fundraising activities totaled approximately 11% and 13% of the total annual contribution revenue for the years ended June 30, 2018 and 2017, respectively. The ratio of expenses to amounts raised is computed using actual expenses and related contributions on an accrual basis. NOTE 12 SUBSEQUENT EVENTS The Organization has evaluated subsequent events through October 8, 2018, the date the consolidated financial statements were ready to be issued. There were no material subsequent events that affected the amounts or disclosures in the financial statements.